A Look Inside The Yankee Universe (and around the world of baseball)

Billion Dollar Bombers

Forbes has released its annual estimate of major league baseball franchise financials, and the Yankees once again sit atop the list. Thanks to the opening of the new Yankee Stadium, the Yankees franchise value jumped 7% to $1.6bn, or nearly twice the value of the next highest team and a shade below the value of the Mets and Red Sox combined. The Yankees also saw revenue increase over 18% to $441mn and stopped a string of six consecutive years of operating losses. In fact, the Yankees 2009 operating income of $24.9mn was the team’s highest since Forbes started conducting the study. The Yankees economic surge has come at a price though. In order to facilitate the building of the new stadium, the team now sits with a debt/value ratio of 89%.

New York Yankees Financial Data, 2000-2009 (Source: Forbes)

Interestingly, the value of the Mets declined by 6% to $858mn, despite the fact that the team also opened a new stadium. According to Forbes, the dip in value reflects a lower than expected revenue increase from 2009 (only 2.6%) as well as an expected drop in 2010 revenue resulting from the team’s decision to slash ticket prices after a disappointing season. In spite of the dampened results, the Mets still turned an operating profit of $26mn, a $2mn increase over 2008. The next time someone argues that the Yankees success is solely predicated by their market, be sure to point to the Mets.

The Mets’ misfortunes allowed the Red Sox to reclaim the second slot on the list. The Red Sox franchise value increased by 4% to $873mn, despite a small drop in revenue. In spite of the slight reduction in revenue, Boston surged to an operating profit of $40mn. Still, with revenue almost constrained, one can see why John Henry has become the latest proponent of cost control by means of a salary cap? I wonder how Red Sox Nation will feel knowing that the team could match the Yankees payroll if only Henry was willing to break even?

The only team to earn a larger operating profit than the Red Sox was the Marlins, who retained their customary position as baseball’s most profitable franchise by taking in over $46mn (the team’s second straight year above the $40mn threshold). Now we know why MLBPA had to scold the Marlins for not spending their revenue sharing money. Baseball can be a lucrative business when you refuse to spend on players.

Speaking of the Marlins, they also experienced the greatest rise in franchise value. Miami’s decision to help fund the Marlins new ballpark, which is scheduled to open in 2012, fueled a 15% increase in value to $317mn. Another team with a new publicly financed stadium, the Twins, experienced the second largest jump in franchise value. Thanks to the anticipated opening of Target Field, the value of the Twins climbed 14% to $405mn.

Unfortunately for Oakland, its inability to secure municipal financing for a new stadium caused it to suffer an 8% drop in franchise value. The A’s decline matched the Blue Jays for worst on the list. At least Oakland and Toronto can console itself by the fact that each franchise was able to turn a nice operating profit. Things could have been worse…like they were for the Detroit Tigers, who lost $29.5mn one year after posting a loss of $26.3mn. The Arizona Diamondbacks were the only other team to record an operating loss, albeit a negligible one at $0.6mn.

On the whole, MLB raked in record profits despite the crippling recession that slowed much of the U.S. economy. Average franchise values jumped to nearly $500mn, while industry-wide operating income increased to $522mn, or $17.4mn per team. Interestingly, Forbes league-wide revenue estimate of $5.9bn actually trailed the $6.6bn figure reported by Commissioner Bud Selig (although part of that may be related to central fund income that isn’t distributed to the teams), so the growth and profitability of the game may have actually been understated. Regardless, the next time someone tries to convince you that baseball is in decline or in need of major economic changes, just laugh at them because that’s exactly what MLB’s owners are doing…all the way to the bank.